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Why You Should Be Wary of Junk Bonds

Investors need to dig a little deeper to better understand the current risks

“Today, if historical default and recovery rates persist, an investor should pocket around 3.7% from a portfolio of junk bonds. That’s more than the 2.5% or so return that one can get from a 10-year U.S. Treasury, but, at a difference of 1.2 percentage points, it is historically less than investors have been willing to accept from junk bonds on this loss-adjusted spread analysis.”